‘Obama Administration’s “We Can’t Wait” Initiative Expedites Five Major Port Projects’ – a concerted US maritime infrastructure investment initiative or just political expediency?

When the announcement was made with major fanfare by the Obama Administration that it was ‘expediting five major port projects’ through it’s ‘We Can’t Wait’ initiative, the maritime ports community in the US and in other countries started to wonder what exactly is ‘We Can’t Wait’, why was it needed, why can’t ‘we’ wait (and for what?), what is the rationale behind it, what will it accomplish and what are the real motivating factors behind it.

‘We can’t wait’ (WCW) is a policy initiative brought out by President Obama in October of 2011 as a response to United States’ Congress’ resistance to pass economic legislation proposed by President Obama after the Democrats lost control of the House(1). There are many reasons behind the total lack of co-operation between the Republican and Democratic Parties presently and the fact that little is being accomplished on a bi – partisan basis. One is the highly partisan and divisive atmosphere found in Washington in the last four years. Another is a result of the practice of attaching non related amendments to legislation in the US. These amendments typically are for expensive government programmes benefiting certain regions or specific groups of people but paid for by a larger taxpayer base, oftentimes for projects with marginal economic value added benefits. This is commonly referred to in the US as ‘pork barrel politics’ and is a practice used by both parties for economic and political gain, one increasingly coming under intense scrutiny in these very challenging economic times.

Since the Republicans took control of the Senate in 2010 it has been much more difficult for President Obama’s to pass legislation, especially if it will result in additional government expenditure or in legislation which might be heavily one sided politically. It should be noted that during the first two years of Obama’s term he enjoyed Democratic control of the House and Senate, which gave him a free reign to pass almost anything he might have wanted. This is how he was able to pass the current national healthcare programme even though approximately 60 percent of Americans were opposed to it(2).

WCW is primarily a set of objectives instituted through ‘Executive Action’ with various incentives for such things as encouraging job growth, refinancing existing mortgages whose face value might be more than the value of the house, funding small business start ups, helping youths find summer jobs and expediting solar and wind projects (a controversial initiative – more on this later). One of the more criticised aspects of WCW has been the use of ‘Executive Action’ to make political appointments during congressional recesses which normally are approved by Congress to such bodies as the National Labor Relations Board and the Consumer Financial Protection Bureau. This is seen as a threat to Congress’ oversight authority and exceeding the president’s constitutional authority compromising the system of ‘checks and balances’ between the three branches of power ie, Executive, Legislative and Judicial, a cornerstone of the American democracy.

It is under the WCW initiative and through an Executive Order issued last March that President Obama on 19 July of this year famously announced that five major port projects will be ‘expedited’(3) . In his announcement he stated, ‘One way to help American business grow and hire is to modernise our infrastructure’, a rather poignant point to make considering what actually is being expedited. The five port projects to be expedited are(4) :

From the above table one will note that the ‘expediting’ of the five major port projects basically consists of finalising Federal Government reviews of the various projects, ones which for the mast part were already well underway.

The key goal for all of these port projects is to attract New Panamax vessels. Yet no one seems to have actually analysed how many ports will actually be needed on the US Eastern Seaboard to service these ships and what else will be required to attract them. And if ‘expediting’ these projects is now so critical (keeping in mind that feasibility studies by the US Army Corps of Engineers can take anywhere from two to ten years to accomplish) and infrastructure projects are supposed to be high on the priority list as job creators, why then wasn’t the streamlining of the approval processes been undertaken years ago ?

Considering the protracted economic difficulties being experienced in the US and the world during the Obama Administration’s tenure (ie, the deepest global recession and the slowest and feeblest recovery since the Great Depression(8)) the US Federal government’s focus should have been on job creation, especially in light of the collapse of the housing market and the construction industry experiencing about a 20 percent unemployment rate. Had this been the case and taking into account the state of the country’s infrastructure (discussed later) one might have thought that the investment in infrastructure repair, maintenance, modernisation and expansion should have been a major priority at the beginning of this administration’s term in office rather than in July, five months before the presidential elections.

All of which raises several questions, namely:

Where did the US$833 billion (US$1.18 trillion with interest (CBO, 31/1/12)) of the American Recovery and Reinvestment Act (the Stimulus) go and what did it accomplish?

What is the state of US infrastructure?

What actually will ‘expediting’ five major port projects in this case accomplish?

Are there other reasons underlying expediting these ‘major port projects’ now? Who was holding them up before?

The Stimulus allocated just US$48 billion(9) to the transport sector. To put this amount into some perspective as to the priority infrastructure and transport was given in the Stimulus, the following is a list of some of the failed ‘investments’ the US government made from the Stimulus to promote green, wind and solar companies. Regardless of one’s opinion on renewable energies, they are, when all is told, almost fifty percent more expensive(10) than fossil fuel energy production today and for the foreseeable future. Considering the severity of the recession and the weakness of the recovery it makes one wonder why the investment was not made in researching ways to burn cleaner coal plants (as they are going to be around for a long time to come still) and expanding natural gas more widely throughout the energy grid, both of which would have a major short term impact compared to the longer term investment made in wind and solar technologies.

The following losses were incurred through government loan guarantees and other incentives given to these renewable energy companies which failed and have gone bankrupt(11) :

Solyndra: US$500 million

Abound Solar: US$400 million

Beacon Power: US$43 million

123 Solar: US$679 million

Evergreen: US$527 million

Ener1: US$118 million

Ecotality: US$115 million

The above companies represent US$2.382 billion in Stimulus money but the total amount spent to date is closer to US$21 billion(12) (or 44 percent of that earmarked for infrastructure and transport investment, which would have employed considerably more people). So far this has produced 28,854 jobs through 3,960 projects with 19 U.S. Department of Energy programs(13).

From The Economist, ‘America’s transport infrastructure, life in the slow lane’(14) article the following gives a rapid synopsis of the state of US infrastructure:

According to the World Economic Forum the US now ranks 23rd in overall infrastructure quality lying between Spain and Chile

Americans now spend more time commuting than Europeans

Total fatality rate in the US is 60 percent above the OECD average on roads

Total public spending on transport and water has consistently fallen since the 1960’s and now is 2.4 percent of GDP compared to Europe at 5 percent and China at 9 percent

According to the Congressional Budget Office (CBO) the US needs to spend a minimum of US$20 billion just to maintain its infrastructure at present levels

The National Surface Transportation Policy and Revue Study Commission in 2008 estimated that the US would need to invest US$255 billion per annum in transport for the next 50 years to keep the system in good repair and make needed upgrades; current spending is falling 60 percent short of this

The fact that US transport infrastructure is in dire need of capital investment for repair, maintenance and upgrades could not be clearer. Yet less than six percent of the Stimulus went to this sector, one that would have had the fastest and greatest impact on job creation, especially with a very depressed construction industry in the country.

All of this raises the additional question of what exactly did the Stimulus accomplish and buy for the American taxpayer, considering that until this month unemployment remained above eight percent for 42 months straight (it is now 7.8 percent) and the effective unemployment rate (ie, unemployed, underemployed and workers dropped out of the work force because they can’t find jobs or known as ‘U6 by the Bureau of Labor Statistics (BLS)) still remains at 15.3 percent (BLS).

From a port infrastructure needs standpoint the real impact a widened Panama Canal will have on the East Coast needs to be considered in the hard, cold light of reality. In the last several years more has been written about the Panama Canal widening than almost any other transport subject in the world. Yet still the fact remains that for the most part most do not know what the net impact will be. It is common knowledge in the industry that over water transport is cheaper than over land. This is the advantage of going through the Panama Canal to reach the East Coast of the US. Juxtaposed to this though the Panama Canal crossing tolls will not be cheap and the West Coast gateway ports and Class 1 railroads (ie, major national railroad companies) will not passively sit around allowing a major shift of cargo from the West to the East Coast without a fight.

Then there is the shifting manufacturing base further into Southeast Asia to consider, resulting in the Suez Canal route becoming more viable as a route to the US East Coast from Asia.

All of this is leading to the conclusion that the probability is great that high value, time sensitive cargoes will continue to use West Coast gateway ports and the US land-bridge since this will still enjoy a three to four day delivery advantage to the Midwest while other cargoes will take advantage of the widened Panama Canal capabilities.

Therefore the increased volume of cargo and containers to most East Coast ports might be a more disappointing linear progression based on economic growth rather than the massive sudden shift everyone is preparing and hoping for today.

Then the New Panamax vessels requirements need to be taken into consideration. Their main advantages of course are significant economies of scale through their ability to carry up to 13,000 teu(15). The business of a New Panamax vessel will be to efficiently carry the maximum possible amount of containers over long distances. Their capital costs and sheer container volume makes it imperative that they constantly be moving, be able to have rapid turnaround times at each port-of-call and have access to major hinterlands for their containers in order to make them financially viable. This will require a limited number of calls to major gateway load centre ports which on the Eastern Seaboard probably translates into two, possibly three ports only.

For any port to effectively service a New Panamax vessel in addition to the requisite physical capability (eg, depth (ie, 50 feet or 15.43 meters), air draft, berthing and land area) and port infrastructure (eg, cranes) it will need to have a very deep and efficient reach into major hinterlands. This will require a significant amount of transport infrastructure as well (ie, rail, intermodal capabilities) in order to process and deliver the amount of containers the New Panamax vessels will carry. Very few East Coast ports meet these requirements today and few will be able to in the short to medium term.

So which are the most likely port candidates which will service the New Panamax vessels on the East Coast?

The Port of New York & New Jersey, which is both a gateway port and a hinterland unto itself, will clearly be one of these ports. The second one will be Hampton Roads, which currently has all of the physical requirements, infrastructure, capacity and reach into the Midwest necessary to service such ships. The final possible port-of-call will need to be located in the South Atlantic and in this regard the two possibilities, based on the aforementioned requirements, will be either the Port of Charleston or Savannah.

This brings us to the question of why is every port in the region racing to dredge to 50 feet and why is the Federal government, notwithstanding the lack of an effective ‘national transport policy’, willing to fund all of these projects under the country’s current economic state. The obvious common sense solution in this situation would be to rationalise port assets by determining which ones would best serve as major gateway and load centres on the East Coast, rather than having every major port on the East Coast dredging away to 50 feet in the hopes of attracting a New Panamax vessel, all of which will cost billions of dollars, money which will need to be found, borrowed or taxed for. As Blan Holman, who is an attorney with the Southern Environmental Law Center stated recently in regards to Savannah’s dredging efforts, ‘The Corps [US Army Corps of Engineers] and Congress have steadfastly refused to ask if Savannah is the best deepwater option in the South Atlantic, they’d rather borrow billions to dredge all the harbours, then let foreign shipping lines play our ports off one another.’(16)

So in the scheme of things how much of an impact will expediting the approval process for the aforementioned five major port projects (all of which were well underway) to dredge to 50 feet (depths which most will not need for the foreseeable future) have on job creation and economic expansion in the short to medium term?

Yes, the Ports of New York & New Jersey, Charleston and Savannah are leading contenders for New Panamax calls and the projects being expedited are critical ones. Jacksonville and Miami are important ports in their own right on a different scale. All ports in the US could use capital to bolster their capabilities and infrastructure. The real issue here though is that streamlining the approval process is something that could and should be done a very long time ago and has been asked for by the port’s industry for many years. A more holistic and integrated approach to rationalising our port and transport assets to reduce duplication, compress supply chains and foment healthier competition should be encouraged and undertaken. This is something which, due to the expected tight Federal budget and capital markets in the foreseeable future, will have to happen. This will also result in a more concerted, integrated approach with which to better meet the myriad and sundry challenges the US ports and shipping industries have been facing for far too long. But we aren’t here yet.

Finally, as to what exactly is the ‘We Can’t Wait: Obama Administration Announces 5 Major Port Projects to be Expedited’, based on:

the current state of the US transport infrastructure;

the ongoing high level of unemployment in the country, especially in the construction sector;

the low priority investment in transport infrastructure this administration has;

New Panamax vessels requiring limited ports-of-call; and

the fact that during the first two years of the Obama Administration, when it controlled both houses of Congress and could have passed almost any bill it wanted to, as it relates to port infrastructure it did just ‘wait’;

could this be a concerted US maritime infrastructure initiative or is it simply political posturing in an election year? The actions, or lack thereof, of government in the last four years seem to point to the latter. Hopefully whoever wins the coming election will make a more serious and concerted effort to address the state of infrastructure in the US.

The Author: Franc J Pigna CRE FRICS CMC is the Managing Director of Aegir Port Property Advisers. Aegir is a pioneer port property consultancy specialising in meeting the unique property challenges faced by ports, the maritime and related logistics industries through practical, market driven, port property strategies supporting a port’s core business mission. Aegir is allied with London based Drewry Maritime Advisers, a globally recognised consultancy to the international shipping, ports, related maritime supply chain and transport industries. Together they bridge the property and maritime industries providing comprehensive analysis and advice to ports in order to maximise their competitiveness, revenues and value through the more strategic use of its largest asset – property. Mr Pigna has been meeting property challenges worldwide on behalf of clients in the port, shipping, related logistics, financial, infrastructure and institutional investment and corporate real estate industries for over thirty years. He is a member of the Counselors of Real Estate in the US and is a Fellow and Chartered Management Consultant of the Royal Institution of Chartered Surveyors in the UK. (www.aegirports.com)